Like many countries right now, the UK has a multitude of overlapping, interconnected problems. Inflation is at a 40-year high, the cost of living is soaring and it’s estimated that more than a fifth of adults and 30% of children will be in absolute poverty next year. Growth and productivity, the rocket fuel out of such situations, are both sluggish.
In desperate times, many instinctively look to the government and charities to save the day. And with good reason, for there is much good they can do. Charities pick up the pieces where people fall through the cracks of the welfare state, and the state can make big, expensive interventions, like Liz Truss’ commitment to freeze people’s energy bills for the next two years.
It is less normal to think radically about the contribution businesses can make. This is often because people worry about interfering in the free market and distracting companies from their bread and butter. Yet the reality is the free market wants to make a bigger contribution to society. British Academy and ReGenerate polling shows that business leaders are now as likely to think the reason why businesses exist is to profitably solve society’s problems as to maximise shareholder value.
They are partly motivated by the same moral impulses as the rest of us – who cannot look at the world right now and want to contribute to easing suffering? – but it is also good business, given the growing evidence that purpose-driven businesses attract talent, more loyal customers and greater investment. That represents a huge win-win for business and society.
The Environment, Social and Governance (ESG) agenda should represent an opportunity to capture those potential benefits and boost the UK’s productivity – but at the moment it is broken and in need of repair.
Though many people conflate ESG with sustainability, CSR, and other forms of ‘responsible’ business or investment, it was really designed as a tool to give investors information about the risks and opportunities that a company is exposed to that relate to environmental, social and governance issues. While little has been done to correct the branding of ESG as a tool to drive positive material change in the world – since it rides on the coattails of that image and attracts vast amounts of investment – it is beginning to struggle under the weight of other people’s expectations.
Why not fix it to make a true difference to the social issues we care about, in a way that is material to businesses? A recent ReGenerate paper, ‘Solve for S’, explores a powerful way in which this might be done.
In short, the investment community and social campaigners should find a single problem to unite and galvanise action around. This has been hugely successful with climate change. Many environmental problems are incorporated into the ESG framework, but none to the same extent as climate change. The unique characteristics, scale and severity of the issue has rapidly driven the issue deep into ESG considerations. This has followed and sometimes gone hand in hand with actions from key stakeholders including the UN, governments, and civil society campaigns.
Likewise, there are many social issues that could be advanced by a rebooted ESG agenda. To really gain traction, an issue must – like climate change – pose a systemic risk or opportunity to an investor’s portfolio and be easily measurable. One such social opportunity could be a focus on providing good jobs to all.
Millions of people have social barriers to work, such as a disability, criminal record or a single parent struggling to find the flexibility they need. Access to secure, fairly paid employment would transform their life chances far more than even an energy price freeze. As well as benefiting society, it would also benefit businesses. The UK is suffering from a serious labour shortage, with 1.3 million job vacancies and counting. The inability to find talented employees is damaging companies and proving a drag on UK growth.
Twenty years ago, investors were only just beginning to ask businesses what their net zero plans were, or what levels of gender and race diversity they had throughout their organisation. Now they all do. What if they added to that a regular question of ‘What proportion of employees had a social barrier to work, and are any of them in full time work and considered to be in poverty?’. It would have a transformative effect on businesses’ contribution to tackling the cost of living crisis for those who are out of work or in insecure and poorly paid work.
It is time for the full power of business to be unleashed to help tackle the cost of living crisis. Rebooting ESG to reward businesses that drive growth while tackling big social problems would benefit society and the businesses themselves. Why wouldn’t we do it?
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